Shelton Ins. Agency v. St. Paul Mercury Ins. Co.

• Decision Date: 14 January 1993
• Docket Number: No. 13-91-325-CV,13-91-325-CV
• Citation: 848 S.W.2d 739
• Parties: SHELTON INSURANCE AGENCY and John M. Roberts, Appellants, v. ST. PAUL MERCURY INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 739

848 S.W.2d 739

SHELTON INSURANCE AGENCY and John M. Roberts, Appellants, v. ST. PAUL MERCURY INSURANCE COMPANY, Appellee.

No. 13-91-325-CV.

Court of Appeals of Texas,

Corpus Christi.

Jan. 14, 1993.

Rehearing Overruled Feb. 25, 1993.

J. Norman Thomas, Rita C. Berthelot, Harris & Thomas, Corpus Christi, for appellants.

Tom Hermansen, Carlos Villarreal, Hunt, Hermansen, McKibben & Barger, Corpus Christi, for appellee.

Before NYE, C.J., and GILBERTO HINOJOSA and SEERDEN, JJ.

OPINION

GILBERTO HINOJOSA, Justice.

This case involves a suit by an insurance agency against an insurer for the alleged mishandling of a claim. Shelton Insurance Agency and John M. Roberts (collectively Shelton Agency) sued St. Paul Mercury Insurance Company, alleging violations of the DTPA, art. 21.21 of the Texas Insurance Code, breach of contract, and breach of the duty of good faith and fair dealing. Shelton Agency asserted St. Paul acted in bad faith when it denied coverage to one of its customers, Frio Drilling Company. The jury found that St. Paul acted in bad faith in denying coverage and awarded Shelton Agency $258,300.52 in actual damages ¹ and $500,000 in exemplary damages. The trial court granted St. Paul's motion for judgment n.o.v. and ordered that Shelton Agency take nothing. Shelton Agency raises three points of error. St. Paul raises fifteen cross-points of error. We affirm in part and reverse and render in part.

St. Paul and Shelton Agency entered into an agency agreement which authorized Shelton Agency to act as St. Paul's agent for the purpose of binding the company on coverage. In 1982, St. Paul informed John Roberts, a Shelton insurance agent, that it wanted to write insurance covering the oil-field business. Roberts sold Frio Drilling Company a policy through St. Paul which insured it against losses resulting from well blowouts. ²

On September 8, 1983, a Frio drilling rig was drilling the Grace Dunagan No. 1 Well when, according to the rig's toolpusher, Mann Laughlin, the well "blew out," ejecting drilling mud out of the well and covering much of the equipment. St. Paul received notice of the loss and assigned the claim to Randolph Fort, its property supervisor.

Roberts testified that on January 18, 1984 (about four and one-half months after the incident), Fort informed him that St. Paul was going to deny the claim because the incident did not fit St. Paul's definition of a blowout. That same day, St. Paul filed a declaratory action against Frio in federal district court. ³

In September 1984, Frio sued Shelton Agency and St. Paul in the 94th Judicial District Court of Nueces County, Texas (Frio suit). John Eckel, Frio's former president, explained that Frio sued Shelton Agency because it bought the policy through the agency expecting that the agency would provide protection for events like the one that had occurred. However, when the claim was denied and the federal suit was filed, Frio felt the agency bore responsibility for the policy.

W.J. Shelton of the Shelton Agency testified that in October 1984, two St. Paul representatives told him that St. Paul was going to settle the Frio case and all its facets. Roberts later discovered that St. Paul had only settled that part of the Frio suit against itself and did not settle that part of Frio's suit against Shelton Agency.

St. Paul had hired attorney Ron Brin to defend Shelton Agency in the Frio suit under an errors and omissions policy which the agency had obtained through St. Paul. However, following other counsel's advice, Shelton Agency dropped its claim against Frio for roughly $40,000 in unpaid premiums ⁴ and settled that part of the Frio suit.

After the above events, Shelton Agency sued St. Paul, alleging St. Paul was liable to pay damages under either the blowout policy or the errors and omissions policy, but that it wrongfully and in bad faith refused to timely pay either of the claims. It sought recovery of the premiums which it wrote off in settling the Frio suit, plus lost commissions due to losing Frio as a customer.

By point one, Shelton Agency complains that the trial court erred in granting judgment n.o.v. favorable to St. Paul because it had sufficient evidence to support its causes of action. To sustain a judgment n.o.v., no evidence must exist to support the jury findings. Exxon Corp. v. Quinn, 726 S.W.2d 17, 19 (Tex.1987); Navarette v. Temple Indep. School Dist., 706 S.W.2d 308, 309 (Tex.1986); Williams v. Bennett, 610 S.W.2d 144, 145 (Tex.1980). In reviewing the grant of a motion for judgment n.o.v., the appellate court must determine whether any evidence exists upon which the jury could have made the finding. The record is reviewed in the light most favorable to the jury findings, considering only the evidence and inferences which support them and rejecting the evidence and inferences contrary to the findings. Best v. Ryan Auto Group, Inc., 786 S.W.2d 670, 671 (Tex.1990); Navarette, 706 S.W.2d at 309; Williams, 610 S.W.2d at 145. If more than a scintilla of competent evidence exists to support the jury's finding, then the judgment n.o.v. should be reversed. Navarette, 706 S.W.2d at 309.

Special Question No. 6, in pertinent part, asked the jury to answer "Yes" or "No" to the following questions:

Did ST. PAUL MERCURY INSURANCE COMPANY do any of the listed acts?

....

A. Deny Frio's claim of coverage with no reasonable basis for the denial[.]

B. Fail to determine if there was a reasonable basis for denying Frio's claim.

C. Refuse to pay Frio's claim without conducting a reasonable investigation based upon all available information.

D. Fail to exercise good faith in the investigation, processing and denial of Frio's claim.

The jury answered "Yes" to all questions, except Question 6C. The jury also found that St. Paul acted intentionally and that its acts proximately caused damages to Shelton Agency.

The evidence showed that Frio was the named insured under the policy; Shelton Agency was not an additional insured or intended beneficiary under the policy. Frio bought the policy from St. Paul through Shelton Agency for its own benefit. In sum, Shelton Agency did not derive any legal relationship from the St. Paul-Frio insurance contract, aside from the fact that it facilitated the contract.

Concerning the claim for breach of the duty of good faith and fair dealing, Shelton Agency calls our attention to testimony that it allegedly had a special relationship with St. Paul. Phillip Honeycutt, a St. Paul marketing manager, testified that a special relationship existed between St. Paul and Shelton Agency and that an agent did not have any control over whether an insurer paid a claim. He also testified that St. Paul had a responsibility to its agents and customers to make sure that claims were handled properly. Jack Larsen, a St. Paul claims manager, testified that St. Paul had an obligation to abide by a standard of fair dealing with its agents and that St. Paul had the same obligation to deal as fairly with an agent as it did with an insured. Roberts, the Shelton insurance agent, testified that he expected an insurer to provide proper claims handling services.

A duty of good faith and fair dealing in the processing and payment of claims arises out of the special relationship between the insured and the insurer. Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 212 (Tex.1988); Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987). This duty of good faith and fair dealing is imposed on the insurer because of the disparity of bargaining power and the exclusive control that the insurer exercises over the processing of claims. Aranda, 748 S.W.2d at 212. The Arnold Court stated:

In the insurance context a special relationship arises out of the parties' unequal bargaining power and the nature of the insurance contracts which would allow unscrupulous insurers to take advantage of their insureds' misfortunes in bargaining for settlement or resolution of claims. In addition, without such a cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims.

Arnold, 725 S.W.2d at 167.

In Aranda, the Supreme Court held that workers' compensation carriers had the duty to deal fairly and in good faith with injured employees in the processing of compensation claims. The Aranda Court stated:

The Workers' Compensation Act sets forth a compensation scheme that is based on a three-party agreement entered into by the employer, the employee, and the compensation carrier. [citation omitted] ... As between the compensation carrier and the employee, there is a promise for a promise; the carrier agrees to compensate the employee for injuries sustained in the course of employment, and the employee agrees to relinquish his common law rights against his employer. [citation omitted] The employee is thus a party to the contract and therefore entitled to recover in that capacity.

Aranda, 748 S.W.2d at 212.

In this case, Shelton Agency was not part of a direct contractual relationship with the insured or the insurer as was the worker in Aranda. Since, in the insurance context, the duty of good faith and fair dealing arises out of a special trust relationship between the insurer and the insured, then St. Paul did not owe Shelton Agency the duty of good faith and fair dealing in this case. See Aranda, 748 S.W.2d at 212; Arnold, 725 S.W.2d at 167. ⁵ Further, Shelton Agency did not request jury questions on whether St. Paul breached any duty owed directly to it. Since the jury was asked only questions concerning liability resulting from St. Paul's handling of Frio's claim, Shelton Agency waived any claim it might have had for breach of a duty running between St. Paul and itself. See Ramos v. Frito-Lay, Inc., 784 S.W.2d 667, 668 (Tex.1990) (plaintiff has "burden to...